NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded one and affirmed two classes of FREMF 2011-K704 multifamily commercial mortgage pass-through certificates. In addition, Fitch Ratings has affirmed two classes of Freddie Mac structured pass-through certificates (SPC), series K-704. A detailed list of rating actions follows at the end of this press release.
KEY RATING DRIVERS
The upgrade of class B in FREMF 2011-K704 is due to a significant increase in defeasance since issuance. According to servicer reporting, 24 loans (28.8% of current pool) are defeased, including the second largest loan. The affirmation of class A-2 is based on continued stable pool performance since issuance. As of the August 2016 distribution date, the pool's aggregate principal balance has been paid down by 7.2% to $1.12 billion from $1.20 billion at issuance. Fitch has not designated any loans as Fitch Loans of Concern, and no loans are currently in special servicing. However, since issuance, one loan (2.4% of original pool) had been in special servicing relating to an SEC investigation of the sponsors, but was disposed in March 2015 with no realized loss.
The affirmations of the Freddie Mac SPC, series K-704 certificates are the result of the pass-through nature of the certificates, as they are dependent on the underlying ratings of the corresponding classes of FREMF 2011-K704.
The remaining loans in the pool have final maturities between April and October 2018. Two loans comprising 4.1% of the pool are structured with full-term interest-only (IO) periods. Those remaining loans in the pool (56 loans; 87.2%) that had partial IO periods at issuance are now all amortizing.
The largest loan (6.3% of pool) is secured by a 366-unit mid-rise apartment complex located in the Rosslyn neighborhood of Arlington, VA. The property was built in 1985 and approximately 30% of the units were renovated in 2010. The servicer-reported NOI DSCR improved to 1.34x at year-end (YE) 2015 from 1.28x at YE 2014. Property occupancy has remained relatively stable at 91.8% as of the June 2016 rent roll, compared to 94% at YE 2015 and 90% at YE 2014.
The second largest non-defeased loan (3.5%) is secured by a 292-unit apartment complex, as well as 26 retail spaces, located in Smyrna, GA. The property was built in 2006 as a planned village community, which spans more than 50 acres. Property amenities include a swimming pool, a picnic area with grills, a fitness center, a cyber lounge, and garage parking. Occupancy has increased to 96.6% as of the June 2016 rent roll, compared to 93% at YE 2015 and 89% at YE 2014. The servicer-reported NOI DSCR improved to 1.62x as of YE 2015 from 1.43x at YE 2014.
RATING SENSITIVITIES
Rating Outlooks remain Stable due to increasing credit enhancement, stable performance of the underlying collateral, and expected continued paydowns. Future upgrades are possible if pool performance improves and credit enhancement increases. Downgrades may be possible should overall performance decline significantly from Fitch's expectations. Additional information on rating sensitivity is available in the report 'FREMF 2011-K704 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K704' (Nov. 08, 2011), available at www.fitchratings.com.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
Fitch has upgraded the following class:
FREMF 2011-K704 Multifamily Mortgage Pass-Through Certificates
--$103.8 million class B to 'Asf' from 'BBB+sf'; Outlook Stable.
Fitch has affirmed the following classes:
FREMF 2011-K704 Multifamily Mortgage Pass-Through Certificates
--$922.2 million class A-2 at 'AAAsf'; Outlook Stable;
--$922.2 million class X1 at 'AAAsf'; Outlook Stable.
Fitch does not rate the class C-1, C-2, X2 and X3 certificates. Class A-1 has paid in full.
Freddie Mac Structured Pass-Through Certificates, Series K-704
--$922.2 million class A-2 at 'AAAsf'; Outlook Stable;
--$922.2 million class X1 at 'AAAsf'; Outlook Stable.
Fitch does not rate the class X3 certificates. Class A-1 has paid in full.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
https://www.fitchratings.com/site/re/882401
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130
U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
https://www.fitchratings.com/site/re/873395
Related Research
FREMF 2011-K704 -- Appendix
https://www.fitchratings.com/site/re/655671
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011144
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011144
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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